Cafeteria lunches are one of many victims of the Ryan Budget.

The budget passed by the U.S. House of Representatives includes deep cuts in federal support for important services that state and local governments in Wisconsin provide. Under the proposed budget — sometimes referred to as the “Ryan budget,” after its author Rep. Paul Ryan — state and local governments in Wisconsin would have difficulty maintaining the services that contribute to a high standard of living in our communities.

The Ryan budget significantly reduces grants from the federal government to state and local governments – grants that support state and local initiatives in transportation, education, housing and community development, health and the environment, workforce development, and other important services.

In 2014, Wisconsin is slated to receive $1.9 billion in federal support from discretionary grants for services provided by state and local governments. Under the Ryan budget, Wisconsin would lose 20% of the grants, or $377 million, resulting in far fewer resources to invest in important priorities such as clean water, improving teacher quality, and road and bridge repair. Over the period 2014 to 2013, the Ryan budget would reduce federal grants to state and local governments in Wisconsin by 18%, or $3.8 billion.

In addition to reducing discretionary grants by the federal government, the Ryan budget would shift costs to states by deeply cutting funding for Medicaid and restructuring how the federal government and state governments work together to provide access to health insurance for nearly 65 million low-income Americans.

The Ryan budget also proposes deep cuts in other programs important to state and local governments, including food stamps, Pell grants, school lunches and other child nutrition programs, the Earned Income Tax Credit, and Supplemental Social Income for the aged and disabled poor.

After the Ryan budget was passed by the House of Representatives last week, it was defeated by the Senate, by a vote of 40 to 59. The Senate passed its own budget resolution, which takes a very different approach to federal spending and deficit reduction. Budget negotiations will continue after Congress returns from recess in early April.

For more, go to www.wisconsinbudget project.org

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For more information, go to www.wisconsinbudgetproject.org.

The income tax cut proposed for Wisconsin is more likely to hurt, rather than help the state economy, if past history in other states continues to hold true.

Critics of the income tax cut have raised a number of concerns about the proposal, including:

• Half of the benefit of the tax cut accrues to the top 20% of earners, even though its proponents have described the tax cut as being targeted at the middle class.
• Most workers earning $30,000 a year or less would not receive an income tax cut. These workers pay a higher share of their income in state and local taxes than the best off.
• The tax cut reduces state revenue by about $170 million per year, and is partly responsible for the projected re-opening of the state’s structural deficit in the coming years.

Added to this list of concerns is the fact that the tax cut is not likely to help Wisconsin’s economy, and in fact could do the opposite. A new report by the Center on Budget and Policy Priorities examines the track record of states that cut personal income taxes in the 1990s and 2000s and found that those states lagged the rest of the country in economic growth.

In the 1990s, the five states with the deepest tax cuts grew at less than a third the rate of all the other states over the next economic cycle. Colorado, Connecticut, Delaware, Massachusetts, and New York made deep income tax cuts in the 1990s. Employment in those states grew more slowly in the period 2000 to 2007 compared to other states.

In more recent history, six states made significant income tax cuts in the 2000s, prior to the recession. Once again, income tax cuts did not lead states to greater prosperity, according to the report:

“Of the six states that cut income taxes sharply between 2000 and 2007 (when the recession hit), three grew more slowly than the rest of the country in the years that followed. The other three saw above-average growth, but they are major oil-producing states (Louisiana, New Mexico, and Oklahoma) that benefitted from a sharp rise in oil prices.”

Income tax cuts like the one Governor Walker has proposed come with hefty opportunity costs: they take resources away from public services that are crucial to building the foundation for future economic growth. And if history continues to hold, then Wisconsin will receive little or no economic boost from the tax cut.

If we want to promote real, long-term economic growth in Wisconsin, then we should invest in quality schools to create a skilled workforce, an efficient transportation network, and safe communities. The cost of the income tax cuts mean that Wisconsin will have a harder time affording those investments in the future.

For more information, go to www.wisconsinbudgetproject.org.

For more, go to www.wisconsinbudgetproject.org

The income tax cut proposed by Governor Walker would cut taxes for many Wisconsinites, but more than three-quarters of a million Wisconsinites would not receive any benefit from the tax cut. Nearly all the people who would not receive a tax cut make less than $30,000.

The proposed income tax cut would reduce income taxes for 73% of tax filers, according to an analysis from the Legislative Fiscal Bureau. The remaining 27% of tax filers – an estimated 757,000 people – would not receive any benefit from the income tax cut.

Nearly all of the tax filers who would not receive an income tax cut are low-income. More than half a million Wisconsinites who earn less than $10,000 a year would not benefit from the income tax cut. Another 166,000 people earning between $10,000 and $20,000 would not receive a benefit, as would 32,000 people who earn between $20,000 and $30,000. About 9,000 people who earn $30,000 and more a year would not receive an income tax cut.

Most people earning under $30,000 would not receive an income tax cut under the plan that Governor Walker has proposed. Just 41% of tax filers who earn under $30,000 would receive a tax cut. In comparison, more than 99% of tax filers earning more than $100,000 would receive a tax cut.

Although many low-income earners have no income tax liability and would not receive any benefit from the income tax cut, they typically pay a higher share of their income in state and local taxes than do Wisconsinites with the highest incomes. People in the bottom fifth of earners, who on average earn about $13,000, pay 9.6% of their income in state and local taxes. That’s a bigger chunk of their income than people in the top 5% of earners pay in taxes, yet most of those low-income earners would not receive an income tax cut under the current proposal.

If lawmakers want to implement a tax cut that would primarily benefit moderate and low-income families, they should beef up the Earned Income Tax Credit. The EITC encourages work, helps families lift themselves out of poverty, and reduces taxes paid by the lowest-income earners. The current budget surplus means we have an opportunity to undo the very significant cuts to the EITC that were included in the 2011-13 budget.

For more, go to www.wisconsinbudgetproject.org

For more, go to www.wisconsinbudgetproject.com

A smarter approach to criminal justice could reduce Wisconsin’s alarmingly large prison population and save the state millions of dollars. That’s the message brought to the state Capitol today by 11×15 Coalition for Justice, an alliance of faith-based groups. The group takes its name from its goal of reducing the state’s prison population to 11,000 people by the year 2015, down from its current level of about 21,000 people.

Wisconsin’s prison population has ballooned in recent decades, and costs have skyrocketed as well. Between 1990 and the high point in 2008, Wisconsin’s prison population nearly quadrupled, fueled in part by “tough on crime” initiatives that emphasized lengthy prison sentences. Since 2008, Wisconsin’s prison population has decreased slightly, but Wisconsin still imprisons a larger share of its population than many other states do. For example, Wisconsin’s incarceration rate is twice that of Minnesota. It costs the state about $38,000 per year to house an inmate.

The enormous jump in the prison population has had significant effects on state spending. Between 2000 and 2010, spending on corrections jumped by 9% after adjusting for inflation, according to a 2011 Wisconsin Budget Project report. In comparison, over the same period state spending on the University System dropped by 20% and spending on the public K-12 educational system dropped by 6%. And last month, the Department of Corrections asked the Legislature for an additional $9.2 million to cover higher-than anticipated operating costs that occurred because the prison population stayed level over the past year, rather than declining as originally projected.

Members of the 11×15 Coalition for Justice are converging on Madison today to visit policymakers and remind legislators that cost-effective reforms could significantly reduce state spending on corrections, as well as reducing the human cost that goes along with incarcerating a large number of residents. Treatment alternatives and diversion programs are widely recognized to be cost-effective reforms that save money and have positive impacts on offenders and communities. For example, a University of Wisconsin report estimated that a $20 million investment by the state in diversion programs could save taxpayers $87 million.

The 11×15 Coalition for Justice is advocating for legislators to add $75 million in the budget for alternatives to incarceration such as day reporting centers, electronic monitoring, and treatment courts for people with substance abuse and mental health problem. That amount represents a significant investment in treatment alternatives, but it’s small in comparison to the $340 million tax cut proposed by the Governor.

Now may be a favorable time to advocate for corrections reform, since in many states, policymakers from both sides of the aisle are beginning to make significant changes to get smarter about how we treat non-violent offenders. If we don’t invest in alternatives to incarceration, we shouldn’t be surprised to find that Wisconsin’s correction costs continue to climb.

For more, go to www.wisconsinbudgetproject.com

Wisconsin Pro-Workers Rally

Small Disagreement Suggests Deep Dispute over Role of Unemployment Insurance Advisory Council

The Wisconsin State Assembly passed a bill Wednesday to approve a bipartisan idea, but in the process rekindled debate about respect for collective bargaining.  What made the debate interesting and significant is that it could have been avoided by simply passing the version of the bill approved by the Unemployment Insurance (UI) Advisory Council, with the full support of the labor and business groups on that advisory body.

The substantive merits of the debate, which concerned only a small part of the bill, are far less important than the procedural matter of whether the Legislature decides this session to depart from the long practice of deferring to the recommendations of the UI Advisory Council.  The Council uses a consensus process that provides stability to the state laws relating to unemployment benefits and taxes.  Both the labor and business groups prefer that stability to the erratic swings in the UI system that could occur if the law is changed significantly every time control of the legislature changes hands.

The bill in question, Assembly Bill 15, helps employers to temporarily downsize without being forced to discharge employees.  It takes advantage of a change in federal law relating to unemployment insurance, which promotes work sharing by allowing employees whose hours have been cut to receive partial unemployment benefits (with the approval of the employer).  It’s an option that may appeal to businesses experiencing a short-term reduction in market demand, since it enables them to retain skilled employees, thereby avoiding the time and expense of searching for and retraining new workers after demand recovers.

Senator Julie Lassa has been pushing this idea for at least a year, and she took her draft legislation to the UI Advisory Council, which endorsed it.  Lassa’s bill, like the legislation in nearly all of the 25 states that have authorized this form of work sharing, would have required union representatives (if any) to approve the work share plan.  However, rather than wait for that bill to make its way through the legislative process, Assembly GOP leaders quickly advanced AB 15, which omitted the part of the bill giving unions a small role in approving the employer plans for the workers.  (The GOP author of AB 15, Rep. Brooks, says that provision is redundant.)

The backdrop for Wednesday’s debate is that the Walker Administration and a number of GOP legislators have proposed sweeping changes in the unemployment insurance system, and they don’t want the labor members of the Advisory Council to be able to block those proposals.  The Assembly vote on AB 15 is a warning to the Council, and particularly to the labor members, that they shouldn’t attempt to stop or water down the proposed changes, or else the Council role will soon become irrelevant.  But that also puts the business representatives on the Council in a very awkward position.  Although they support the proposed changes backed by the Governor, they are very fearful about the long-term consequences of undermining or eliminating the Council’s role in UI policymaking.

Amendments relating to the disputed portion of AB 15 were tabled on straight party-line votes.  The final motion for passage was approved by a vote of 74-22, and AB 15 now goes to the Senate for consideration.  Although I think the Senate will be somewhat more receptive to the arguments for passing the version of the bill recommended by the Advisory Council, I can’t predict what the outcome will be in that chamber of the Legislature.

Read more in this WUWM story by LaToya Dennis.

Jon  Peacock
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For more, go to www.wisconsinbudgetproject.org.

The state’s structural deficit is projected to re-open in coming years, thanks largely to the income tax cut proposed by Governor Walker and other recent tax cuts.

In 2013, the state’s General Fund is projected to have a structural balance of $146 million, which means that revenues were greater than state spending by that amount. But in coming years, state spending is projected to outstrip revenues, creating a structural imbalance that rises to nearly $350 million in 2017. Based on these projections, state lawmakers would have a $664 million hole to fill in the 2015-17 budget.

In the past, Governor Walker has placed a great deal of emphasis on the need to bring state spending in line with revenues. In his budget proposal for the 2009-11 budget, Walker pointed out that his budget reduced the structural deficit to an all-time low in the history of tracking this measure. He accomplished this by making very significant cuts in state spending.

Some opinion-makers are surprised that Governor Walker’s new budget proposal grows the structural deficit. The budget proposal increases the deficit largely by introducing a new income tax cut that will reduce state tax revenues by about $170 million a year. A number of phased-in tax cuts also contribute to the future mismatch between state revenues and spending.

Todd Berry, from the Wisconsin Taxpayer’s Alliance, summed up the situation in an interview with Milwaukee Public Radio:

Over the last 10-15 years, Wisconsin’s budgets on paper were very narrowly balanced, and in fact really weren’t, because they were passing forward structural problems from budget to budget. To the governor’s credit, in the last budget they spent a lot of political capital to get those budget balances up…So, it’s sort of 2-3 years of a lot of pain and suffering to improve these basic budget measures, and then sort of turn around and give up some of the progress. It’s sort of ironic.

It’s possible that revenues might be lower than projected in future years, widening the mismatch between tax revenue and state spending. That’s because the most recent state revenue projections, which were made in January 2013, are based on economic forecasts that assumed that no cuts would be made from the sequester in 2013, and that Congress will replace the sequester with a balanced package of new revenues and spending cuts, which would go into effect starting in 2014. So far that assumption hasn’t panned out, and the negative effects of sequester on the economy could mean that revenue projections for the future were overly optimistic. If revenues come in at levels lower than projected, the structural deficit could increase even more.

In recent weeks there has been a great deal of discussion and debate about how the proposed tax cut would be distributed. Although that is a very important issue, the more fundamental question is whether we want Wisconsin to return to the practice of starting each biennium in a deep budget hole.

For more, go to www.wisconsinbudgetproject.org.

For more information, go to www.wisconsinbudgetproject.org.

Mining Bill Reduces Resources for Local Governments to Address Impact of Mine

Local governments affected by a proposed mine in northern Wisconsin might not have sufficient resources to offset the increased public costs associated with the mine. That’s because the proposed mining bill, which has passed the Joint Finance Committee and heads to the Senate Wednesday, diverts part of the revenue from the mining tax away from a fund set to offset mine-related costs of local governments, and instead sends it to the Wisconsin Economic Development Corporation.

Under current mining tax law, all proceeds from the mining tax are set aside to provide financial assistance to local governments experiencing social, environmental, or economic impacts from the mine.

The mining bill currently under consideration in the Senate changes the law and instead allocates only 60% of the proceeds from the mining tax to the fund to address local impacts. The remaining 40% of proceeds would be sent to the Wisconsin Economic Development Corporation, with no specific requirements as to how the money must be spent. As a result of this change, fewer resources will be available to compensate local governments for mine-related costs, such as the additional wear and tear on roads from heavier traffic loads.

The mining tax may not even generate much revenue in the first few years of the mine’s operation. That’s because the mine will be required to pay a tax on its net proceeds, and the significant investments in machinery and equipment required at the beginning of the mine’s operations will reduce the mine’s proceeds and therefore the amount of tax owed by the mine. Some other states, such as Minnesota, tax mines based on their output.

A proposal by Senators Tim Cullen, Bob Jauch and Dale Schultz to create a tonnage tax here got the attention of anti-tax crusader Grover Norquist, president of “Americans for Tax Reform.” He sent a letter to 21 Wisconsin legislators warning that they would be breaking their pledge not to raise taxes if they support Cullen’s proposal for a more robust mining tax.

In addition to the mining tax, the proposed mine would also be subject to the Wisconsin corporate income tax – at least in theory. But a new tax credit for manufacturers, agricultural producers, and mines gradually reduces Wisconsin income tax rates for corporations in these industries from 7.9% down to 0.4% in 2016. That means a corporation, such as a mine, with $10 million in taxable Wisconsin income would go from paying $790,000 in 2012 in corporate income tax to paying just $40,000 in tax in 2016.

Advocates have already raised significant concerns about the environmental impact of the mine. We should also be concerned about the social and economic effects the mine will have on local communities. Generating mining tax proceeds and keeping them in communities affected by the mine would help offset negative effects. And undoing some of the changes to corporate income taxes would help the state make the sorts of investments in training and infrastructure that will produce sustainable economic growth.

For more information, go to www.wisconsinbudgetproject.org.

Governor Walker has proposed an income tax cut that would benefit the highest earners the most, and would result in insignificant tax cuts for low-income Wisconsinites.

The Governor has been talking about his plans for an income tax cut for several weeks now, but the details of his proposal were revealed just last night, when Walker unveiled his two-year budget recommendations.  He has proposed reducing the tax rate for three of the five income tax brackets, as shown in the table below. (The income amounts reflect the brackets for a married couple filing jointly; most of the brackets are lower for people filing singly or as head of household.)

If you’re among the fortunate Wisconsinites who have an annual income of more than $211,000 (after all deductions and exemptions) and you’re concerned you won’t enjoy any of the tax cut, you needn’t worry!  You’ll actually get the largest cut, $300, because the tax rate will be reduced for all of your income up to the $211,000 level.

New "Middle-class tax cuts" in Wisconsin help the rich even more.

The estimated cost of the tax cut is $342 million over the two year budget period. To put that amount in context, that is more than the state plans to spend on the entire Wisconsin technical college system over that period.

Governor Walker has described the tax cut as benefiting the middle class, but most of the dollars will go to the pockets of the best-off.  Fifty-four percent of the tax cut will go to the top 20% of tax filers, according to an analysis of the proposal by the Institute on Taxation and Economic Policy.  The bottom 20% of taxpayers would get just 1% of the tax benefit.

In dollar amounts, people at the bottom of the income ladder will receive virtually no benefit from the income tax cut. The lowest 20% of tax filers would receive a tax cut of just $2 a year. People in the top 1% of filers would average a tax cut of $285.

The distribution of benefits could have been much worse; it would have skewed much more heavily in favor of upper income tax filers if the rates for the upper income tax brackets had also been reduced.  However, even an income tax rate cut aimed at income below about $220,000 primarily helps people near the top, since they get the full benefit.  Read more in this Capital  Times article by Mike Ivey.

For more, go to www.wisconsinbudgetproject.org.

For more, go to www.wisconsinbudgetproject.org.

Our state is expected to finish the current fiscal year with a balance of about $420 million. There have been scads of ideas for what to do with that money – most of which don’t seem to take into account that a balance isn’t an ongoing revenue stream. Let’s take a look at a few of the options.

Although the anticipated surplus is very good news, keep in mind that one of the main reasons for the expected balance is that state officials projected a $208 million deficit about a year ago and took steps to reduce spending to address the anticipated shortfall. As a result of a number of painful cuts and lapses that were subsequently made, coupled with a rebound in revenue from the low level anticipated a year ago, state lawmakers now find themselves in the very unusual position of carrying a solid balance into the next biennial budget.

Most legislators, especially fiscal conservatives, understand that a surplus or budget balance is a pot of one-time money that shouldn’t be committed to a permanent spending increase that isn’t sustainable. Yet they often don’t acknowledge that the same is true with respect to tax cuts. Thus, many politicians have been saying that the current budget balance should be used for an ongoing income tax cut. What they don’t say is that using a short-term funding source in that way will soon require either a new round of spending cuts or future tax increases.

To avoid the appearance of creating a structural deficit in future years, I think the budget will contain large transfers of General Fund tax revenue into the Transportation Fund to finance highway spending, while categorizing those expenditures as a short-term use of General Fund dollars. I think that’s a bad idea substantively and also in terms of fiscal responsibility, because it would create a long-term expectation of higher transportation spending. As a technical matter, labeling it as a short-term maneuver creates the appearance of being fiscally responsible and avoiding a structural deficit, but only superficially because it will probably create much the same fiscal and political problems for policymakers in future budgets.

I think the most fiscally responsible thing to do with the surplus is to use a significant chunk of it to increase the minimum reserve that the state has to have put aside at the end of each fiscal year. That reserve essentially acts as a cushion or margin of error if revenue falls short of projections. Most states try to have a 5% reserve, but Wisconsin’s is less than 0.5%. For the better part of the last 20 years, lawmakers have been pledging to increase it, but they keep delaying the phased-in increase, and Walker’s last budget postponed the statutory provision that would have increased it in the 2013-15 biennium. I can understand making that decision at the time, but there is no excuse now for not increasing the required reserve in the next budget.

Another fiscally responsible thing to use a surplus for is to pay off existing debt, such as the substantial increase in bonding in the Governor’s last budget. But the same logic doesn’t apply to one of the oddest budget proposals that has been proposed recently – increasing bonding for transportation, and selling off the UW power plants to help pay off transportation bonds. Apparently, there was a concern that increasing long-term debt wouldn’t be appreciated by fiscal conservatives (or by liberals less enamored of highway spending). I presume that selling off the power plants is supposed to alleviate that concern – yet it creates a new liability for the ongoing cost of the power needed for University buildings. Unless I’m missing something, that scheme would be a slight of hand that takes many years of debt service costs incurred by the Transportation Fund and trades them for an indefinite period of General Fund liability for energy costs.

I think there will be many promises made that the Governor’s 2013-15 budget is fiscally responsible. And perhaps it will be. But I hope the budget doesn’t create an appearance of being fiscally responsible by using fiscal schemes that shift substantial fiscal costs far into the future.

For more, go to www.wisconsinbudgetproject.org.

As ALEC deepens its hold on the Wisconsin Legislature, a new study shows how damaging the Council can be.

States that follow the economic policy agenda promoted by ALEC risk weakening state economies and harming middle class families. That’s the message of a new report by the Center on Budget and Policy Priorities, which outlines American Legislative Exchange Council’s policy recommendations and their negative effects.

ALEC is a network of conservative state legislators and lobbyists that works to influence state legislation in a variety of policy areas, including budget and tax policy. According to CBPP, ALEC’s proposals would:

cut taxes deeply for wealthy individuals, investors, and corporations; shift tax burdens substantially from well-to-do to middle- and low-income households; and impose strict constitutional or legal limits on revenues or spending that would severely limit states’ ability to provide adequate funds for education, health care, and other priorities, and impair state economic growth.

Many of the recent changes made to Wisconsin’s tax and budget system follow ALEC’s recommendations. For example, the Wisconsin state legislature has passed several new tax cuts that primarily benefit corporations and well-off individuals. At the same time, the legislature made deep cuts to a tax credit that helps working families stay in the middle class, thereby increasing the amount of taxes these families pay. And a new requirement that any tax increases must be approved by a two-thirds majority of the legislature hurts Wisconsin’s ability to continue to make investments in education, the health of the workforce, and community safety.

The bad news for Wisconsin is that states that follow ALEC’s agenda fare worse than other states. States with minimal public services, tax systems that favor the rich, and weak or non-existent unions – all of which are favored by ALEC – fared worse economically during the recession compared to other states, according to a report from the Iowa Policy Project. Residents in states that adhered most closely to ALEC’s agenda were more likely to experience rising poverty rates and falling incomes.

By increasing taxes on working families, cutting taxes for the wealthy, and tying the hands of legislators responsible for making tough budget decisions, Wisconsin is shortchanging our future. Instead of following ALEC’s agenda and risking economic stagnation, Wisconsin should work toward building a state economy in which prosperity can be broadly shared.

For more information, go to www.wisconsinbudgetproject.org.

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